Amazon Vendor Chargebacks & Shortages: How to save your business millions

Shaun Moore, Senior Account Manager at Optimizon, explains how Amazon Vendor Chargebacks and Shortages could be costing your business thousands in lost revenue. How to avoid the extra charges, and how Optimizon can help.

Plug the Chargeback Leak

For many vendors a huge leakage of profits comes from the unexpected fees derived from Amazon Chargebacks and Shortages.

It’s staggering how many big brands are simply writing off this lost profit. In fact, some big businesses are either unaware that these costs can be eliminated, or they simply aren’t addressing the problem.

To understand the scale of losses, in 2017, in the US alone, chargebacks cost $31 billion in losses, over half of which were shouldered by vendors. Amazon sales have more than doubled since this data was released. Therefore the chargeback burden is likely to be significantly more today. 

Amazon Vendor Chargebacks and Shortages Explained

Amazon has multiple regulations for its vendors. These are essential in order to maintain order in the Amazon warehouses, particularly in terms of logistics. 

Imagine how many millions of deliveries Amazon receives into its warehouses from vendors. Now imagine a scenario where each vendor packages things in a slightly different way. They could have differing delivery schedules, incorrect packaging, or uses an incorrect labelling system.  It’s easy to imagine how much chaos it would cause within the Amazon warehouses. This chaos would directly impact Amazon’s efficiencies.

Amazon leads the way in terms of logistics. However, for Amazon to maintain slick and efficient logistics processes, it is vital that vendors conform to the standards required.  These standards are set out in the Vendor Manual.

Vendors that don’t stick to the Amazon process, don’t prep their deliveries and packages properly, or make logistical errors, can expect to be charged by Amazon to rectify those mistakes.  These errors will cost Amazon time and money after all.

In other words, chargebacks are fees imposed onto Amazon Vendors who do not follow the site’s guidelines. This can range from late deliveries, not sufficiently packaging the item, a carton not sitting 2cm within a pallet’s boundary, to simply incorrectly applying a carton label. The charges can be quite hefty too, eating away at your profit margin.  In some cases brands can lose thousands of pounds in profits.

Shortages relate more to stock discrepancies, which we will touch upon later. These too can be avoided and save thousands per year.

Reasons for Vendor Chargebacks and Shortages Fees

Chargebacks can be issued be for a number of reasons, including stock discrepancies, logistical problems (sending stock to early or too late), packaging issues, or data misalignment. 

Shortages mainly relate to stock discrepancies. This can occur if there are mistakes on labels or barcodes, or if there has been an error in packing.  For example, you send Amazon a box of 20 items, in a product’s outer packaging.  However, your supplier has a barcode on the box that you don’t cover. Then you send it on to Amazon. Amazon staff see the barcode, scan it and then call the entire load one unit (meaning that you not paid for the ‘missing’ 19 items).

Another example is that you’ve incorrectly filled in your ASN for the shipment (Advanced Shipment Notification) with a different quantity, or a different product. Amazon won’t pay for the incorrect items or difference in quantities.

So, if you’ve broken the Vendor Manual rules, or there are issues with your packing or logistics, Amazon could incur an unexpected cost to deal with the issue. Amazon will then pass this cost back on to vendors. Amazon is basically charging your business for non-compliance. 

However, aside from ensuring that you comply with Amazon’s rules, it’s always worth triple checking that the fees are valid too. Chargeback and Shortages fees can be issued by mistake. In fact, this happens a lot.

How much can Amazon Vendor Chargeback & Shortages fees cost my business? 

It’s vital for vendors to know how chargeback fees can affect them, where to look for them, what to do with them. Most importantly, how to dispute them. Otherwise you could see your earnings shrink considerably. 

We work with one large brand that had a ‘relatively small’ proportion of chargeback fees, yet this still amounted to almost £3,000 a month.

The good news is you can dispute many of these fees, some of which are often issued unfairly. In fact, Optimizon has personnel dedicated to helping clients claw back unwarranted charges. 

It’s wise not to simply write these costs off as an ‘Amazon cost’.  Not only will keeping on top of them save you money immediately, but it will also help you shape your operations to better comply with the Amazon Vendor Manual (and save money going forward).

How is my business informed of chargebacks? 

Your business will receive a chargeback notification. You’ll need to let Amazon know whether you accept it, or whether you plan on disputing it. 

Keep on top of the notifications make up your mind promptly. If you’re going to contest the charge, you have 60 days from receiving the notification to notify Amazon. After this date the chargeback fee will be deducted automatically. 

So, how does my business dispute Amazon chargebacks? 

If, after receiving a chargeback notification, you decide it’s been wrongfully issued, you can contest it. However, you’ll need proof to back up your claim.

You’ll need to send the supporting documentation (as much as possible) to Amazon, stating your case.  

In some cases, if it’s a small amount, it’s wise for sellers to weigh up the cost of disputing a fee against the time it will take to contest it. 

If you are seeing the same charges crop up time and time again, it’s a good indication that something needs to change in your supply chain.

How can my business manage chargeback fees? 

As an Amazon vendor, chargeback fees are something you’ll want, and need, to remain on top of.  

Some commentators accuse Amazon of making the process intentionally complicated.  If you are losing significant sums of income to chargebacks, it may be prudent to outsource to a chargeback specialist.

Optimizon can take care of this for you, removing the hassle of processing chargebacks, and saving your business money.

Our specialist team will also help your business cut down on mistakes in the future. When new mistakes do happen, we can quickly train your team to ensure it doesn’t happen again so you don’t see that chargeback again in the future.

However if you prefer to tackle this in-house, you’ll need to be familiar with thee various types of chargeback fees. You will also need to stay on top of the latest Vendor Manual (this is a hefty 12mb document that can be downloaded from your Vendor Account).

With the knowledge of Amazon’s fees and requirements, you’ll know exactly how to avoid the charges.

Once you know what you are looking for, do a weekly check to ensure you don’t miss any chargeback notifications or deadlines. If you want to dispute a chargeback claim, address it within 60 days.